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HSBC expects Bangko Sentral to keep policy rate steady 

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British financial giant Hongkong and Shanghai Banking Corp. (HSBC) does not expect the Bangko Sentral ng Pilipinas to change its monetary policy stance on Thursday as inflation sustained its downward trajectory since it peaked at 8.7 percent in January 2023.

Latest data from the Philippine Statistics Authority showed that inflation in November 2023 slowed to a 20-month low of 4.1 percent from 4.9 percent a month ago.

“With headline CPI easing quickly to where the BSP wants it to be, the central bank is likely to— confidently—keep its policy rate steady at the last rate-setting meeting of the year on 14 December 2023,” HSBC said in a report over the weekend.

The bank said with the improvement in the economy’s macroeconomic fundamentals, there was no impending need “to adjust monetary policy to be even more restrictive.”

It further said that even if headline CPI falls back to within target soon, it would not change the BSP’s monetary stance.

“We expect headline CPI to rise again and breach the BSP’s 2-4 percent target band in 2Q24 when the tariff rates for rice, corn, coal, and pork increase due to the expiration of Executive Order 10 on 31 December 2023. With upside risks to inflation still heavily tilted to the upside, it may still be too early to put rate cuts on the table,” it said.

It said the economy would need time to pause, to ensure that the BSP’s tight monetary stance filters through to the economy.

“That being said, we expect the BSP to gradually begin its easing cycle after the Fed does its first rate cut in 3Q24. By then, we expect headline CPI to be softening on a consistent basis,” it said.

HSBC said cutting at the same rate as the Fed would also mitigate the volatility of the peso-dollar exchange rate given how wide the current account deficit still is for the Philippine economy.

The BSP kept the overnight borrowing rate steady at 6.5 percent last Nov. 16, taking into account the slower inflation in October and the stronger gross domestic product expansion in the third quarter.

BSP Governor Eli Remolona earlier said monetary authorities remained hawkish, or ready to raise interest rates next week if needed, despite the latest inflation number showing that it was slowly returning to the target range of 2 to 4 percent.

“Hawkish means we could either pause, we could hike on Dec. 14 [monetary policy meeting],” Remolona said during the BSP-hosted Christmas dinner for central bank reporters Wednesday last week.

Central bankers are described as “hawkish” when they are in support of the raising of interest rates to fight inflation, even to the detriment of economic growth and employment.

Remolona said risks remained and monetary authorities were assessing the situation. He said it was premature to say that “we will start to ease.”

“The easing is premature. We want to make sure that we are within the target range comfortably… When we are comfortable about that, then we can start to think about easing. The economy is still very strong and robust,” he said.

The BSP raised the policy rate by 25 basis points to 6.5 percent in an off-cycle move last Oct. 26 to rein in inflation.


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